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Ch. 12: Money & Banking - YRDSBschools.yrdsb.ca/markville.ss/history/economics/cie3m.ch12.pdf ·...
Transcript of Ch. 12: Money & Banking - YRDSBschools.yrdsb.ca/markville.ss/history/economics/cie3m.ch12.pdf ·...
![Page 1: Ch. 12: Money & Banking - YRDSBschools.yrdsb.ca/markville.ss/history/economics/cie3m.ch12.pdf · Gr. 11 Economics (CIE3M1) M. Nicholson . MONEY ! ... Branch banking in Canada vs.](https://reader031.fdocuments.in/reader031/viewer/2022022012/5b19b2b27f8b9a3c258cce14/html5/thumbnails/1.jpg)
Ch. 12: Money & Banking
Gr. 11 Economics (CIE3M1)
M. Nicholson
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MONEY
l Money is anything that people are willing to accept as payment for goods & services
l In the past cows, stones, beads, beaver pelts and playing cards have functioned as money
l Canadian dollars are legal tender in Canada whereas credit cards and Canadian Tire bills do not have to be accepted as payment
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MONEY
l Cheque - order to pay an individual a specific amount of money from demand deposit or chequing account
l Money supply (M1) = Currency + Chequing
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BARTER
l One good or service must be exchanged for another good or service
l Problem of double coincidence of wants arises which wastes a lot of time
l Problem of indivisibility of bartered goods and services also arises
l Money solves both of these problems
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USES OF MONEY
l Medium of exchange 1. Generally acceptable 2. Portable 3. Divisible 4. Unique 5. Uniform in value
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USES OF MONEY
l Measure of value l Store of value
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BANKING
l Chartered banks have a federal charter (e.g. Royal, CIBC, Montreal, TD Canada Trust, Nova Scotia)
l Schedule 1 banks are the six largest banks in Canada and have immense financial power with over 95% of M1 (most an individual can own is 10%)
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BANKING
l Schedule 2 banks are subsidiaries of foreign banks and have little impact on the Canadian economy
l Branch banking in Canada vs. unit banking in USA
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BANK OF CANADA
l Central bank of Canada founded in 1935 is now a Crown corporation
l The bank of the banks supplies Canada with currency
l Federal government uses B of C to manage its financial affairs (e.g. bonds)
l Main function is controlling the money supply to meet the needs of the Canadian economy
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OTHER FINANCIAL INSTITUTIONS
l Trust companies l Mortgage companies l Credit unions and caisses populaires
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MONEY CREATION
l loans by the banks of customer’s deposits creates money
l Cash-reserve requirements or fractional reserves determine how much the money supply can be increased based on the amount of the deposits
l The banks only need enough money for the daily needs of customers and can lend out the rest to earn interest and profits for the bank
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REGULATION OF THE MONEY SUPPLY
l Open market operations are the buying and selling of federal government bonds by B of C
l Expansion of the money supply à B of C buys CSBs (Canada Savings Bonds)
l Contraction of the money supply à B of C sells CSBs
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REGULATION OF THE MONEY SUPPLY
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REGULATION OF THE MONEY SUPPLY
l Changes in the bank rate or lending rate to banks influences the prime lending rate to the banks’ best customers
l Moral suasion à used by the Gov. of the B of C (Carney) to influence lending policies at banks